Things will still get worse

By Michelle Tay

THINGS will still get worse before they get better, but the upside is that the stock markets appear to be bottoming, said the chief executive of Oversea-Chinese Banking Corp (OCBC), Mr David Conner.

Mr Conner gave this assessment at a media briefing on the group's first quarter results on Wednesday, shortly after a Bloomberg report said that most Asian stocks rose on the better-than-expected earnings of United Overseas Bank (UOB) and OCBC, offsetting concerns that US banks will need more capital.

OCBC said its first-quarter profit fell 12 per cent due to writedowns on bad debts. Singapore's third largest lender earned a net profit of $545 million in the three months to Mar 31, down from $622 million in the same period a year ago.

Bad debts totalled $197 million, compared to a net allowance writeback of $8 million a year ago. The allowances include $94 million for the bank's corporate CDO (collateralised debt obligations) portfolio, as the bank's total CDO exposure of $305 million has been fully written down through the first quarter income statement.

Said Mr Conner: 'It's quite a surprise that portfolio declined as rapidly as it did given the fact that 18 months ago it was a single A-rated portfolio. But it was continuing to decline so we said enough is enough and let?s put it behind us once and for all.'

OCBC's revenue for the quarter grew 16 per cent year on year to $740 million, driven by loans growth and improved interest margins. Gross loans grew 7 per cent to $80.4 billion, which the bank attributed mainly to business loans in Singapore and overseas markets.

'If you add it all up it's quite a good quarter,' said Mr Conner, adding that the group has 'done well' despite the challenging operating environment.

But he cautioned: 'We don't see good times returning very quickly. Consumers have to rebuild their own balance sheet, and even if they wanted to be profligate with their spending, they can't get credit. So I think it's going to be a fairly long and slow climb out of this situation.'

Compared to the fourth quarter of 2008, however, the group's profit rose by 118 per cent from $250 million, due to a doubling in insurance income from subsidiary Great Eastern Holdings, a recovery in foreign exchange, securities and derivatives dealing income from losses in the previous quarter, and a reduction in expenses, said the group.

Revenue saw a quarter-on-quarter increase of 134 per cent, also due to the higher insurance income. Net gains from foreign exchange, securities and derivatives dealing totalled $112 million, up from net losses of $64 million for these trading activities in the previous quarter.

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